BANKING COLOSSUS Citigroup joined the ranks of the rescuers yesterday as regional bank Wachovia, the sixth-largest US lender by assets, succumbed to the upheaval in financial system only days after its efforts to merge with Morgan Stanley ran aground.

In a transaction sealed before the House of Representatives voted down the Bush administration's controversial plan to bail out the financial system to the tune of $700 billion, Wachovia agreed to sell most of its assets to Citi for $2.16 billion in stock in a deal brokered by the Federal Deposit Insurance Corporation. Following the collapse last week of Washington Mutual, which was seized by federal regulators and quickly sold to JPMorgan, Wachovia's rescue is the latest in a series of landmark transactions that have transformed American banking as weaker institutions fall by the way.

The bank joins a long line of institutions previously deemed strong, only to see their business collapse or be sold in the face of the contagion spreading from the subprime meltdown. These include Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae and Freddie Mac.

Citigroup will absorb as much as $42 billion of losses on Wachovia's $312 billion pool of loans, the Federal Deposit Insurance Corp said in a statement. The regulator will take on losses beyond that amount in exchange for $12 billion in preferred stock and warrants.

Citi's acquisition of Wachovia's banking operations creates one of the biggest US branch networks, expanding the footprint of the group to 4,300 offices, with another 3,300 around the world.

The deal is not without pain for Citigroup investors, whose quarterly dividend will be cut in half to 16 cent per share from 32 cent.

The deal will push New York-based Citigroup to third place among US bank networks, behind Bank of America and JPMorgan Chase.